SOURCE: Stellus Capital Investment Corporation

Stellus Capital Investment Corporation

November 06, 2015 06:00 ET

Stellus Capital Investment Corporation Reports Results for Its Third Fiscal Quarter Ended September 30, 2015

HOUSTON, TX--(Marketwired - November 06, 2015) - Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2015.

 
HIGHLIGHTS
($in millions, except data relating to per share amounts and number of portfolio companies)
   
Portfolio resultsAs of September 30, 2015 
Total assets$337.0 
Investment portfolio, at fair value$323.0 
Net assets $170.0$170.0 
Weighted average yield on debt investments10.6% 
Net asset value per share$13.62 
   
 QuarterQuarter
 endedended
 September 30, 2015September 30, 2014
Portfolio activity  
   
Total investments made, at par$25.5$7.0
Number of new investments53
Repayments of investments, including amortization$22.5$1.2
Number of portfolio companies at end of period 35
28
Operating results  
   
Total investment income$8.6$7.8
Net investment income$3.8$5.3
Net investment income per share$0.31$0.42
Regular dividends declared per share$0.34$0.34
Net increase (decrease) in net assets from operations($0.6)$2.1
Net increase (decrease) in net assets from operations per share($0.05)$0.17
   

"We are pleased to report that our originations exceeded payoffs during the third quarter. We are seeing a number of interesting opportunities and we are continuing to access SBA-guaranteed debentures," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the third quarter of 2015 with a portfolio of $323.0 million (at fair value) invested in 35 companies. As of September 30, 2015, our portfolio included approximately 30% of first lien debt, 44% of second lien debt, 23% of mezzanine debt and 3% of equity investments at fair value. Our debt portfolio consisted of 27% fixed rate investments and 73% floating rate investments (subject to interest rate floors). The average size of our portfolio company investments was $9.2 million and our largest portfolio company investment was approximately $21.6 million at fair value. The weighted average yield on all of our debt investments as of September 30, 2015 was approximately 10.6%.

During the three months ended September 30, 2015, we made $25.5 million of investments in two new portfolio companies and three existing portfolio companies and received $22.5 million of proceeds from the repayment of investments, including $1.3 million from amortization of certain other investments.

This compares to the portfolio as of December 31, 2014, which had a fair value of $316.0 million invested in 32 companies comprising 24% of first lien debt, 32% of second lien debt, 41% of mezzanine debt and 3% of equity investments at fair value. As of December 31, 2014, our debt investments had a weighted average yield of 10.9% and consisted of 44% fixed rate investments and 56% floating rate investments (subject to interest rate floors).

Results of Operations

Investment income for the three months ended September 30, 2015 and 2014 totaled $8.6 million and $7.8 million, respectively, most of which was interest income from portfolio investments.

Operating expenses, net of fee waiver for the three months ended September 30, 2015 and 2014, totaled $4.8 million and $2.6 million, respectively. For the same respective periods, base management fees totaled $1.5 million and $1.3 million, incentive fees totaled $1.0 million and $0.4 million, fees and expenses related to our borrowings totaled $1.5 million and $1.4 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.2 million and $0.3 million and other expenses totaled $0.6 million and $0.6. The Advisor waived no incentive fees for the three months ended September 30, 2015. The Advisor voluntarily waived incentive fees of $1.4 million during the three months ended September 30, 2014.

Net investment income was $3.8 million and $5.3 million, or $0.31 and $0.42 per common share based on weighted average common shares outstanding for the three months ended September 30, 2015 and 2014.

The Company's investment portfolio had a net change in unrealized depreciation for the three months ended September 30, 2015 and 2014, of $4.6 million and $3.0 million, respectively. For the three months ended September 30, 2015 and 2014 the Company had realized gains of $2 thousand and $4 thousand, respectively.

Our net increase (decrease) in net assets resulting from operations totaled ($0.6) million and $2.1 million, or ($0.05) and $0.17 per common share based on weighted average common shares outstanding for the three months ended September 30, 2015 and 2014, respectively.

Liquidity and Capital Resources

As of September 30, 2015 and 2014, our credit facility provided for borrowings in an aggregate amount up to $120 million and $150 million, respectively, on a committed basis. As of September 30, 2015, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. As of September 30, 2015 and December 31, 2014, we had $110.8 million and $106.5 million, respectively, in outstanding borrowings under the credit facility.

For the nine months ended September 30, 2015, our operating activities provided cash of $3.3 million primarily in connection with cash interest received and repayments of our investments. For the same period, our financing activities provided cash of $0.7 million, primarily related to the issuance of SBA debentures.

For the nine months ended September 30, 2014 our operating activities provided cash of $2.1 million primarily in connection with cash interest received and repayments of our investments, and our financing activities used cash of $11.6 million, primarily due to repayments on the credit facility.

Distributions

During the three months ended September 30, 2015 and 2014, we declared distributions of $0.34 per share ($4.2 million) for each quarter. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year. None of these dividends are expected to include a return of capital.

Recent Portfolio Activity

New investment transactions and repayments which occurred during the three months ended September 30, 2015 are summarized as follows:

  • On July 8, 2015, we received full repayment on our second lien term loan of Telular Corp. at par plus a 1% prepayment premium, resulting in total proceeds of $7.6 million.
  • On August 6, 2015, we made a $12.5 million investment in the first lien loan of Catapult Learning, LLC, a leading provider of specialized education services.
  • On August 10, 2015, we funded $2.4 million under the delay draw term loan of Software Paradigms International, reducing our unfunded commitment to $0.4 million.
  • On August 17, 2015, we received full repayment on the unsecured term loan of Snowman Holdings, LLC at par, resulting in proceeds of $11.2 million.
  • On August 20, 2015, we made a $0.6 million equity investment in an existing portfolio company, Colford Capital Holdings, LLC.
  • On August 27, 2015, we received a partial repayment on the second lien term loan of Calero Software LLC resulting in proceeds of $2.5 million, and made an additional equity investment of $25.0 thousand.
  • On September 24, 2015, we made a $10.0 million investment in the second lien term loan of Sitel Worldwide Corporation, a leading outsourced provider of marketing services, with a focus on the technology, e-commerce, insurance, and consumer goods markets.

Events Subsequent to September 30, 2015

On October 9, 2015, we received full repayment on our second lien term loan of Help/Systems Holding Inc. at par, resulting in total proceeds of $15.0 million.

On October 29, 2015, we invested $10.5 million in the first lien debt and $0.3 million in the equity of Apex Environmental, LLC.

Credit Facility

The outstanding balance under our credit facility as of November 3, 2015 was $94.5 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on November 6, 2015, at 10:00 a.m. Central Standard Time. The conference call will be led by Robert T. Ladd, chief executive officer, and W. Todd Huskinson, chief financial officer, chief compliance officer, treasurer, and secretary.

For those wishing to participate by telephone, please dial (888) 417-8533 (domestic). Use passcode 2970643. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through November 14, 2015 by dialing (888) 203-1112 and entering passcode 2970643. The replay will also be available on the company's website.

 
PART I - FINANCIAL INFORMATION
               
STELLUS CAPITAL INVESTMENT CORPORATION
               
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
               
      September 30,      
    2015   December 31,
    (Unaudited)   2014
ASSETS          
  Non-controlled, non-affiliated investments, at fair value          
    (amortized cost of $332,172,782 and $321,955,480, respectively) $ 322,966,189   $ 315,965,434
  Cash and cash equivalents   6,079,062     2,046,563
  Interest receivable   4,346,553     5,082,665
  Deferred offering costs   261,761     261,761
  Deferred financing costs   665,337     828,956
  Accounts receivable   7,684     696
  Prepaid loan fees on SBA debentures   1,106,738     681,947
  Prepaid loan structure fees   1,382,333     1,774,630
  Prepaid expenses   140,504     419,283
    Total Assets $ 336,956,161   $ 327,061,935
LIABILITIES          
  Notes Payable $ 25,000,000   $ 25,000,000
  Credit facility payable   110,750,000     106,500,000
  SBA Debentures   26,000,000     16,250,000
  Dividends payable   1,413,982     1,413,983
  Base management fees payable   1,462,024     1,360,019
  Incentive fees payable   1,129,318     1,121,556
  Interest payable   325,931     346,204
  Unearned revenue   40,534     157,403
  Administrative services payable   380,240     591,744
  Deferred tax liability   254,941     288,122
  Other accrued expenses and liabilities   206,525     83,452
    Total Liabilities $ 166,963,495   $ 153,112,483
Commitments and contingencies (Note 7)          
Net Assets $ 169,992,666   $ 173,949,452
NET ASSETS          
 Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,962 and 12,479,962 shares issued and outstanding, respectively)$12,480 $12,480
  Paid-in capital   180,994,764     180,994,783
  Accumulated undistributed net realized gain   294,863     -
  Distributions in excess of net investment income   (1,847,907)     (779,643)
  Net unrealized depreciation on investments and cash equivalents, net of provision for taxes of $254,941 and $288,122, respectively.   (9,461,534)     (6,278,168)
Net Assets $ 169,992,666   $ 173,949,452
  Total Liabilities and Net Assets $ 336,956,161   $ 327,061,935
  Net Asset Value Per Share $ 13.62   $ 13.94
  
  
  
STELLUS CAPITAL INVESTMENT CORPORATION  
                          
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
                  
   For the   For the   For the   For the  
   three months   three months   nine months   nine months  
   ended   ended   ended   ended  
   September 30,   September 30,   September 30,   September 30,  
   2015   2014   2015   2014  
INVESTMENT INCOME                         
 Interest income  $ 8,509,804   $ 7,766,986   $ 25,776,147   $ 23,126,699  
 Other income    93,009     55,511     231,219     557,753  
  Total Investment Income  $ 8,602,813   $ 7,822,497   $ 26,007,366   $ 23,684,452  
OPERATING EXPENSES                         
 Management fees  $ 1,462,024   $ 1,281,231   $ 4,322,488   $ 3,842,971  
 Valuation fees    139,266     128,815     328,065     344,952  
 Administrative services expenses    224,836     312,870     800,863     856,804  
 Incentive fees    954,908     410,134     2,914,633     2,173,966  
 Professional fees    92,320     115,463     454,675     399,490  
 Directors' fees    76,000     86,000     260,000     290,000  
 Insurance expense    119,417     121,730     354,603     361,220  
 Interest expense and other fees    1,557,629     1,409,565     4,522,176     3,841,487  
 Other general and administrative expenses    156,782     105,418     391,330     256,385  
  Total Operating Expenses  $ 4,783,182   $ 3,971,226   $ 14,348,833   $ 12,367,275  
 Waiver of Incentive Fee    -     (1,399,226 )   -     (1,399,226 )
  Total Operating Expenses, net of fee waivers  $ 4,783,182   $ 2,572,000   $ 14,348,833   $ 10,968,049  
  Net Investment Income  $ 3,819,631   $ 5,250,497   $ 11,658,533   $ 12,716,403  
  Net Realized Gain on Investments and Cash Equivalents  $ 2,146   $ 3,907   $ 294,863   $ 441,364  
  Net Change in Unrealized Depreciation on Investments and Cash Equivalents  $ (4,593,553 ) $ (2,955,085 ) $ (3,216,547 ) $ (3,803,120 )
  Benefit (provision) for taxes on unrealized gain on investments  $ 147,439   $ (185,888 ) $ 33,181   $ (185,888 )
  Net Increase (Decrease) in Net Assets Resulting from Operations  $ (624,337 ) $ 2,113,431   $ 8,770,030   $ 9,168,759  
  Net Investment Income Per Share  $ 0.31   $ 0.42   $ 0.93   $ 1.04  
  Net Increase (Decrease) in Net Assets Resulting from Operations Per Share  $ (0.05 ) $ 0.17   $ 0.70   $ 0.75  
  Weighted Average Shares of Common Stock Outstanding    12,479,962     12,404,485     12,479,962     12,214,875  
  Distributions Per Share  $ 0.34   $ 0.34   $ 1.02   $ 1.09  
  
  
  
STELLUS CAPITAL INVESTMENT CORPORATION  
              
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)  
          
   For the   For the  
   nine months   nine months  
   ended   ended  
   September 30,   September 30,  
   2015   2014  
Increase in Net Assets Resulting from Operations             
Net investment income  $ 11,658,533   $ 12,716,403  
Net realized gain on investments and cash equivalents    294,863     441,364  
Net change in unrealized depreciation on investments and cash equivalents    (3,216,547 )   (3,803,120 )
Benefit (provision) for taxes on unrealized appreciation on investments    33,181     (185,888 )
Net Increase in Net Assets Resulting from Operations  $ 8,770,030   $ 9,168,759  
Stockholder distributions             
Net investment income    (12,726,816 )   (12,473,610 )
Net realized capital gains    -     (786,436 )
Total Distributions  $ (12,726,816 ) $ (13,260,046 )
Capital share transactions             
Issuance of common stock    -     5,087,335  
Reinvestments of stockholder distributions    -     313,113  
Sales load    -     (75,510 )
Offering costs    -     (29,904 )
Net increase in net assets resulting from capital share transactions  $ -   $ 5,295,034  
Total increase (decrease) in net assets  $ (3,956,786 ) $ 1,203,747  
Net assets at beginning of period  $ 173,949,452   $ 175,891,514  
Net assets at end of period (includes $1,847,907 and $1,019,866 of distributions in excess of net investment income, respectively)  $ 169,992,666   $ 177,095,261  
 
 
 
STELLUS CAPITAL INVESTMENT CORPORATION
           
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
       
   For the  For the
   nine months  nine months
   ended  ended
   September 30, 2015  September 30, 2014
Cash flows from operating activities          
Net increase in net assets resulting from operations  $ 8,770,030  $ 9,168,759
 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:          
  Purchases of investments    (85,108,716)    (58,454,022)
  Proceeds from sales and repayments of investments    76,333,638    49,485,710
  Net change in unrealized depreciation on investments    3,216,547    3,803,220
  Deferred tax provision (benefit)    (33,181)    185,888
  Increase in investments due to PIK    (387,975)    (538,457)
  Amortization of premium and accretion of discount, net    (759,387)    (488,829)
  Amortization of loan structure fees    392,297    452,054
  Amortization of deferred financing costs    163,619    74,964
  Amortization of loan fees on SBIC debentures    136,646    -
  Net realized gain on investments    (294,863)    (446,239)
 Changes in other assets and liabilities          
   Decrease (increase) in interest receivable    736,112    (643,642)
   Decrease in receivable for affiliated transaction    -    43,450
   Increase in accounts receivable    (6,988)    (31,013)
   Decrease in prepaid expenses and fees    278,779    29,522
   Increase in management fees payable    102,005    104,501
   Decrease in directors' fees payable    -    (10,000)
   Increase (decrease) in incentive fees payable    7,762    (841,055)
   Increase (decrease) in administrative services payable    (211,504)    288,157
   Increase (decrease) in interest payable    (20,273)    102,224
   Decrease in unearned revenue    (116,869)    (17,417)
   Increase (decrease) in other accrued expenses and liabilities    123,073    (161,558)
Net cash provided by operating activities  $ 3,320,752  $ 2,106,217
Cash flows from financing activities          
  Proceeds from notes issued    -    25,000,000
  Proceeds from SBA Debentures    9,750,000    -
  Financing costs paid on notes issued    -    (997,317)
  Financing costs paid on SBA Debentures    (561,437)    -
  Proceeds from the issuance of common stock    -    5,116,989
  Sales load for common stock issued    -    (75,510)
  Offering costs paid for common stock issued    -    (116,149)
  Stockholder distributions paid    (12,726,816)    (11,533,709)
  Borrowings under credit facility    86,500,000    78,000,000
  Repayments of credit facility    (82,250,000)    (98,000,000)
  Repayments of short-term loan    -    (9,000,000)
Net cash provided by (used in) financing activities  $ 711,747  $ (11,605,696)
Net increase (decrease) in cash and cash equivalents    4,032,499    (9,499,479)
Cash and cash equivalents balance at beginning of period    2,046,563    13,663,542
Cash and cash equivalents balance at end of period  $ 6,079,062  $ 4,164,063
Supplemental and non-cash financing activities          
  Accrued deferred offering costs  $ -  $ 4,752
  Shares issued pursuant to Dividend Reinvestment Plan  $ -  $ 313,113
  Interest expense paid  $ 3,844,890  $ 3,206,081
           

About Stellus Capital Investment Corporation

The Company is an externally-managed, closed-end, non-diversified investment management company that has elected to be regulated as a business development company under the Investment Company Act of 1940. The Company's investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation by investing primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and mezzanine debt financing, and corresponding equity investments. The Company's investment activities are managed by its investment adviser, Stellus Capital Management. To learn more about Stellus Capital Investment Corporation, visit www.stelluscapital.com under the Stellus Capital Investment Corporation link.

Forward Looking Statements

Statements included herein may contain "forward-looking statements" which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Available Information

Stellus' filings with the Securities and Exchange Commission, press releases, earnings release, and other financial information are available on its website at www.stelluscapital.com under the Stellus Capital Investment Corporation link.

Contact Information